Livescribe Gets $39 Million to Prove the Power of the Smart Pen

9/9/10Follow @wroush

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playing them back. (Oh, there’s also a ballpoint pen in there for actually writing.) An improved version, the Echo, came out this July, featuring more memory. Livescribe has found a healthy population of early adopters for both of the devices.

“We’ve known the company for three-plus years, since before the product was on the marketplace, and the reason we invested, at a big-picture level, is that they’ve done much, if not all, of what they said they’d do,” O’Driscoll says. “They pulled off something that’s pretty darn hard to do, which is to get a consumer electronics product into the marketplace, get it shipping, and get it used not by tens of thousands but by hundreds of thousands of users…We think that’s the tip of the iceberg, in terms of how big it can be.”

2. Livescribe’s devices are different from the dozens of preceding digital pens, and are about to get more powerful. “The voice-pen synchronization, and the ability to upload your notes to your computer, and from there to the Web if you want, is a nice combination, and that’s fueled the growth so far,” says O’Driscoll. “What’s going to fuel the growth over the next three to five years is that it’s going to link to your core business productivity tools. You could type a couple of commands and have it sync to your e-mail, which makes notes actionable in real time.”

3. The price is right, and it’s going lower. The basic 2-gigabyte Pulse pen costs $129.95, and the basic 4-gigabyte Echo pen costs $169.95. “It doesn’t take a genius to figure out where you go from $129 downward,” says O’Driscoll. (I took this to mean that Livescribe’s pens will eventually be available for $99.) “That’s the kind of price where the consumer can purchase it—and for that you get a massive productivity and learning tool.”

4. Smart pens enhance tablet computers, rather than competing with them. The implications of the iPad for Livescribe was “one of the questions we talked a lot about [before investing], but actually I think they are complementary,” says O’Driscoll. “The iPad is an awesome consumption device, but only a decent input device. We have people in our shop who use the iPad for input, writing small cryptic notes to themselves, but for in-depth notes it’s very hard to use in real time. When you see some of the things these guys [at Livescribe] are doing to integrate notes, voice, and other file types over the next 12 months, you’ll see what a record you can develop using a Livescribe pen. It will be so much more compelling, if fidelity is important to you…And if you want to send your notes to the iPad, have at it, they are developing that too. It’s all part of the trend away from the laptop as the core computing device.”

Maybe O’Driscoll is right about all of that. But $39 million is still a major chunk of cash, at least in the infotech world, where many companies are getting by on smaller rounds these days because they’re working in areas like Web software with much lower capital requirements. My last question for O’Driscoll was why Livescribe needed that much money.

“It’s a new product, it’s a new hardware product, it’s a new hardware product in a new category area, and its primary mode of distribution is retail,” he answered. “All of that means you need the capital to aggressively attack the marketplace and do distribution right.” Scale Venture Partners, which specializes in helping mid-stage companies move from early sales success to massive growth, hopes its contribution to the Series C round will help keep the company going until it breaks even, O’Driscoll says. “We wanted them to be able to clear the next two-plus years of retail sales, so they’re not driven back to the market to raise money again until the product is validated and has proven its success. We anticipate that the next funding would be through an IPO.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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